Tata Sons Ltd, the holding company that runs Ratan Tata's industrial empire, is planning to raise $2 billion (Rs 9000 crore) by offering a part of its holding in information technology leader Tata Consultancy Services (TCS) through a listing in the US market, highly placed sources say.
The sources involved with market dealings told Hindustan Times that the move could be aimed at building a war chest for the Tatas to outbid Brazil's Companhia Siderugica Nacional (CSN) with which it is embroiled in a war to acquire control of Anglo-Dutch steel maker Corus Group Plc.
Officially, a Tata Sons spokesman tersely denied any immediate plan for TCS to have an ADS (American Depository Share) issue, which in all likelihood would involve listing the company's stock on the New York Stock Exchange or Nasdaq.
"There is no such proposal at present," the spokesman said.
However, according to highly placed sources, TCS is planning to do a sponsored ADS issue on the US bourses in the near future, where Tata Sons, as a promoter, will offer part of its own holding of domestic shares for conversion to American shares.
This would be the first sponsored issue by TCS, India's largest software exporter, outside India. The number two player, Nasdaq-listed Infosys, has so far completed three sponsored ADS issues on the US bourses.
Sources close to the deal said that the proposed ADS issue of TCS would be the biggest in the history of the Indian capital market. "It will stun the market as the size will be much larger than expected," one of them said on condition of anonymity.
Industry sources said TCS is planning to file a draft red-herring prospectus with the Securities and Exchange Commission (SEC) of the US shortly. Under SEC regulations, a company is not expected to comment on an issue until the regulator clears its interim prospectus and allows it to file a final version.
It may be recalled that Tata Sons has already committed to investing $1 billion in Tata Steel in the leveraged buyout of Corus in which the Anglo-Dutch firm's assets will be used to raise debt to fund its purchase.
However, there could be a mismatch in the timing of the ADS and the final Corus bid. "Tata Sons can raise a bridge loan to finance its commitment towards Tata Steel for the Corus acquisition, which can subsequently be replenished through the ADS proceeds," said one source.
TCS has a current market capitalization of around Rs 1,25,000 crore ($28 billion). The company had its market debut in August 2004 when it made an initial public offering at Rs 850 per share. Even after a bonus issue in a one-for-one ratio, the share is currently trading at around Rs 1,263.
The promoters' holding in TCS is at 83.65 per cent, of which Tata Sons alone controls 79.5 per cent.
Sources in investment banking said that there were preliminary discussions on the ADS issue last November with the management and promoters of TCS. The subject was being discussed for quite some time, although the modalities were not decided. Besides raising resources for the promoters, one key reason for an ADS issue would be the creation of a brand value in the US market which is expected to further Tata Consultancy's brand image in the US, its key export market.